Tuesday, August 23, 2011

The manic depressive market wildly swings up and down on each new news story: The Fed is meeting at Jackson Hole on August 27 possibly to discuss QE3 (or not), and that news may pump up the stock market. But China's banks seem to be using Enron's accounting manual, Europe's banks need liquidity and are loaded with bad debt, and U.S. banks only temporarily TARPed over trouble.

Tuesday, August 23, 2011

I spent part of the day in a hospital, and I'm tired, so tonight's report will be a little shorter than usual.

The market was very oversold on the short-term charts heading into the weekend and when those charts get repeatedly oversold, you get bounces for a small period time. You don't expect the world higher, but you know some type of reflex is on the way. We saw the futures blast up allowing for a higher open. The market tried a bit higher, but failed not too long after the market gapped up. The Dow was up just a little over two hundred points. In bear markets you avoid chasing gap ups. The market spent the rest of the day trying to hang in there, and after going red a few times, it did manage to hang on to slight profits.

Monday, August 22, 2011

"Triangle, triangle on the wall, what are thee telling us about market direction overall?" Neither the lack of European financial integration nor the imminent fall of Gadhafi have jogged the Euro and Brent crude oil futures out of their recent sideways ranges. Perhaps we should view the post August 8 pattern in the e-mini S&P 500 as a triangle pattern too? And, if so, what will that mean?

Monday, August 22, 2011

The past few weeks have been fast moving with fearful investors clearly in control. As we all know fear is the most powerful force in the financial market and when the hedge funds and the masses get spooked they all dart in one direction like a school of fish. Watching the charts and volume levels it’s clear that money was/is flowing out of stocks and into precious metals as the risk off safe plays. This was explained in last week’s report on how the GLD etf can be used as a fear/sentiment indicator (read here).

Monday, August 22, 2011

Whether you rely on fundamentals, technicals, or a combination of both, investment analysis centers around looking at probabilistic future outcomes based on historic outcomes that occurred under similar circumstances. Given the weight of the fundamental and technical evidence we have in hand and in the context of history, the odds have shifted from favoring higher highs in stocks and risk assets to favoring lower lows. Until conditions improve, we will continue to err on the side of caution and treat the current market climate as unfavorable for intermediate to longer-term investing. We have minimal exposure to global stocks. We have positions in gold (GLD), silver (SLV), bonds (TLT), and cash.

Sunday, August 21, 2011

The crash of Oct. 19, 1987, AKA “Black Monday” witnessed a 20-percent-plus fall of index numbers, and therefore nominal stock market value in 1 day: since early August 2011 we have had falls of around 15 percent in 15 days.

Retrospective mythmaking on the 1987 crash noted that Iran had fired missiles over the Persian Gulf, causing some nervous moments, rather like Hamas firing missiles on Israel, today. The decisive factor, for some mythmakers treating the 1987 event, was that 24 years ago the US wanted a lower-valued dollar, rather like today, prompting foreign investors to start to dump stocks fearing exchange rate-related losses.

Sunday, August 21, 2011

World markets have broken important support levels over the past three weeks. Global equity indexes have now fallen into a new bear market.

Fears about the spiraling European debt crises and a stalling US economy is largely the cause for the decline (Chart 1). Most indexes have already dropped 10% to 14% in August as investors run to safe havens. An additional 10% to 12% is expected by year end.

Sunday, August 21, 2011

The death of the long-established risk-to-reward asset categories was the subject of "It's Over." From lowest to highest: cash, bonds, and stocks, are the pecking order of institutional investment policies. Pension plans and endowments that have wandered into warehouses and gas-pipeline management often retain the outline as a mental diagram. The assets with the highest assumed risk (using statistical measurements) are expected to produce the highest return. The genesis for this construction is the Capital Asset Pricing Model (CAPM), a deeply flawed academic theory.

Sunday, August 21, 2011

We look for defining moments that tell us something has changed. That what was once one trend is now another, although it's hard to see it initially. It's about trusting those technicals that tell you where one market ended and another began. S&P 500 1249 was that level. Losing it lost the up trend line off the March 2009 lows. It also meant losing huge horizontal support, and the bottom of the big triangle in place at the time. It opened the door to much lower prices potentially, and that potential has been filled. I don't think anyone would deny that. It's been ugly since we lost S&P 500 1249. Some short-term rallies along the way, but the trend has been to sell and sell hard almost on a daily basis. Some monster days lower of 4% plus. One day like that is unusual enough. Multiple days like that tell you something is terribly wrong economically.

Sunday, August 21, 2011

After last week’s rebound, which carried into mid-week, world equity markets headed south on thursday and friday. While the SPX/DOW were losing 4.35%, the 10 Year US Bond hit an all time low of 1.98%, and Gold soared to $1881 on friday. Recession fears, centered around Europe this time, are driving rates lower. While monetary fears, centered around the developed countries, are fueling the rise in Gold. On the economic front reports came in mixed with an interesting theme: rising prices during a weakening economy. On the negative side: housing starts, existing home sales, building permits and the monetary base were all lower. The NY and Philly FED, plus the WLEI, are now all in contraction and negative.

Sunday, August 21, 2011

Last weeks article was titled "setting up the next decline." I mentioned to readers that we could see a push higher towards the 1200ES area in the early part of the week, but I still suspected we would find a high in that area.

The market made it a little more frustrating that I wanted to see, but it eventually it came good, having put in 2 false breakouts, the 3rd attempt finally cracked lower, a what a move!, it finally made the effort that we put in looking for that 4th wave high all the more worth it.

Saturday, August 20, 2011

The Dow has been trending lower since July 22, 2011. Other than a fabulous 600-point rally from 3PM to 4PM following the Fed meeting of August 9, 2011, the trend downward has been brutal and abrupt. There was also a 400-point rally two days later that was followed with two more rally days on falling volume. That may have been a warning sign. The Dow then turned lower oddly enough at just about the 38% Fibonacci retracement line of the descent. The Dow now sits at 10817. What will happen when the markets open on Monday?

Saturday, August 20, 2011

“ Markets are purely about Speculations. There is no more such thing as INVESTING in the markets. It is just Speculation on different timeframes “

Traditionally we have the market that is made up of retail and institutional investors together with the market makers that facilitates these investors. In the last couple of years, there have been much changes in the investment landscape and that is High Frequency Trading or HFT for short. HFT accounted for about 70% of daily trading volume in NYSE, 60% in Europe and 50% in Asia. In other words there is a paradigm shift in the traditional Investors Buy and Hold market to a Trader’s market.

Saturday, August 20, 2011

In today’s looming confrontation the ratings agencies are playing the political role of “enforcer” as the gatekeepers to credit, to put pressure on Iceland, Greece and even the United States to pursue creditor-oriented policies that lead inevitably to financial crises. These crises in turn force debtor governments to sell off their assets under distress conditions. In pursuing this guard-dog service to the world’s bankers, the ratings agencies are escalating a political strategy they have long been refined over a generation in the corrupt arena of local U.S. politics.

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